Here’s what HIVE AI had to say about “Agricultural tax provisions and depreciation”:

Key Agricultural Tax Provisions and Depreciation Planning

Core Depreciation Framework for Farmers

• Depreciation is allowed for property used in farming or held for the production of income under IRC §167; most post-1986 tangible farm property uses MACRS under §168 with prescribed methods, recovery periods, and conventions. Trees and vines bearing fruit or nuts are 10-year property under GDS, straight-line; 20-year under ADS, straight-line. 1 2

Section 179 and Special Depreciation Allowance

• Farmers generally can elect Section 179 expensing and may be eligible for special (bonus) depreciation on qualified property under §168(k), in addition to regular MACRS. Pub. 225 covers Section 179, special depreciation allowance, and listed property rules applicable to farmassets. 2

Bonus Depreciation for Specified Fruit and Nut Plants

• For “specified plants” (fruit and nut trees, vines, and similar multi-crop plants with a pre-productive period >2 years), taxpayers electing §168(k)(5) may deduct additional first-year depreciation in the year planted or grafted rather than the in-service year; once applied, the plant is not treated as qualified property again in the placed-in-service year. Elections are revocableonly with IRS consent. 3
• For years including September 28, 2017, regulations allowed an election to deduct 50% instead of 100% additional first-year depreciation for specified plants planted or grafted after September 27, 2017, via Form 4562 by the return due date including extensions. Failure to elect requires 100% unless an overall class election out is made. 4
• IRS guidance notes the TCJA changes: for specified plants planted/grafted after 12/31/2015 and before 1/1/2020, elect 50% first-year; phased down to 40% for 2018 and 30% for 2019 if elected. 5

Electing Farming Business and Interest Limitation Trade-offs

• Electing out of the §163(j) business interest limitation as a farming business requires using ADS for any property with a recovery period of 10 years or more and disallows the special depreciation allowance on that property. This election is irrevocable and applies by business. 2

Uniform Capitalization (UNICAP) Plant Cost Election and ADS

• Electing not to capitalize preproductive plant costs under §263A(d)(3) for plants with a preproductive period over 2 years triggers two key special rules while the election is in effect: treat plants as §1245 property with gain recapture up to the amount of avoided capitalized costs; and require ADS for all property used predominantly in any farming business of the taxpayer or related person placed in service in years the election is in effect.6
• Pub. 225 mirrors these: electing out of UNICAP for plants >2-year preproductive period requires ADS for all farming-property placed in service while the election is in effect; citrus and almond grove costs in first 4 years are excluded from the election. 2
• Rev. Proc. 2020-13 clarifies that revoking a §263A(d)(3) election requires a non-automatic method change; §263A(i) small taxpayer exemption doesn’t force ADS or §1245 treatment retroactively, but prior §1245 status remains for plants treated as §1245 7

Depreciation of Trees and Vines; Dispositions and Recapture

• Fruit or nut trees and vines: GDS 10-year SL; ADS 20-year SL. If you elect out of UNICAP for such plants, disposition gain is ordinary up to preproductive costs that would have been capitalized and must be reported as §1245 recapture (Form 4797). 2 2
• IRS technical advice confirms that trees or vines bearing fruit or nuts are 10-year MACRS property; §1245 characterization hinges on specific statutory and regulatory definitions and use; vineyards placed in service areepreciable under §168. 8

Cost Capitalization for Plants with Long Preproductive Periods

• If UNICAP applies, capitalize direct and allocable indirect costs for plants with nationwide weighted average preproductive period >2 years (see Table 6-1 in Pub. 225). If you elect out, you still cannot include certain citrus/almond early-year costs, and must use ADS. 22

Unharvested Crop Rule when Selling Land

• If you sell unharvested crops with land treated as §1231 property, no deduction is allowed for expenses or depreciation attributable to producing that crop; basis must be adjusted accordingly 9

Land Clearing Costs and Depreciation Interaction

• Certain land clearing expenditures are governed by §182; depreciation attributable to land-clearing-use equipment may be treated as §182 expenditures and is deemed depreciation allowed under §167 with basis adjustments under §1016(a). 10

Electing Farming Business: Practical ADS Impacts

• If you elect out of §163(j), you must depreciate any property with 10+ year recovery under ADS and cannot claim bonus depreciation on that property. Schedule F instructions and Pub. 225 emphasize this interplay. 11 2

New Law Highlights Potentially Affecting Farmers (OBBBA)

Special Depreciation for Qualified Production Property

• A new special depreciation allowance class for “qualified production property” treats such property separately and coordinates with other special depreciation provisions; QPP is excluded if ADS applies. While focused on manufacturing/production, agricultural production is included in the statutory definition of “production,” and the Secretary may extend placed-in-service dates for acts of God. Farmers with nonresidential real property used in processing/production may benefit if not under ADS.12

Farmland Capital Gain Treatment

• New installment-like spreading: gain from the sale of “qualified farmland property” to a qualified farmer can be spread over four annual installments if the property was used/leased for farming for substantially all of the prior 10 years and is restricted to farm use for 10 years post-sale. 13

Exclusion of Interest on Loans Secured by Rural/Agricultural Real Property

• New exclusion for interest on loans secured by rural or agricultural real estate, with coordination rules under §265 treating a portion as tax-exempt; affects interest allocation and deduction disallowance mechanics. 14

Planning Considerations and Traps

When to Elect ADS

• Consider ADS if electing out of §163(j) for interest deductibility stability in high-debt operations, recognizing loss of bonus depreciation on 10+ year property and longer recovery. 2

UNICAP Election Trade-offs

• Electing out of UNICAP accelerates deductions but forces ADS on all farm property placed in service in election years and creates §1245 recapture on disposition. Revocation needs a non-automatic method change 6 7

Specified Plant Bonus Timing

• If establishing orchards/vineyards, model §168(k)(5) planting-year bonus vs. placed-in-service-year deductions, mindful of election timing on Form 4562 and one-time additional depreciation limit. 3 4

Unharvested Crops with Land Sales

• Selling land with unharvested crops as §1231 property disallows related expenses/depreciation; adjust basis and consider sale timing to avoid disallowance surprises. 9

Estimated Tax and Bonus Depreciation

• For annualized estimates, you may project depreciation including anticipated first-year bonus and §179 consistent with budgets and reasonable expectations. 15

Quick Answers to Common Farm Depreciation Questions

Can I bonus-depreciate new orchard plantings?

• Yes, by electing §168(k)(5) you may claim additional first-year depreciation in the planting/grafting year for specified plants; you cannot claim it again when placed in service, and revocation requires consent. 3

If I elect out of §163(j), do I lose bonus depreciation?

• You must use ADS for 10+ year property and cannot claim special depreciation allowance on that property; other shorter-lived property may still qualify subject to general rules. 2

What happens if I elect out of UNICAP for long-lived plants?

• You must use ADS for all farming business property placed in service while the election is in effect; on sale, recapture ordinary income up to avoided capitalized costs for those plants.

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